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As Of Filer Filing For·On·As Docs:Size Issuer Agent 12/07/06 Meritor Inc 8-K:7,9 12/07/06 2:4.7M Edgar Ease Svc Bureau/FA |
Document/Exhibit Description Pages Size 1: 8-K Current Report HTML 14K 2: EX-99.1 December 7, 2006 Presentation HTML 263K
2006 Analyst Day
Chip McClure
Chairman, CEO and President
1
Forward-Looking Statements
2
This presentation contains statements relating to future results of the company (including certain projections and business
trends) that are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Forward-
looking statements are typically identified by words or phrases such as “believe,” “expect,” “anticipate,” “estimate,”
“should,” “are likely to be,” “will” and similar expressions. Actual results may differ materially from those projected as a
result of certain risks and uncertainties, including but not limited to global economic and market cycles and conditions; the
demand for commercial, specialty and light vehicles for which the company supplies products; risks inherent in operating
abroad (including foreign currency exchange rates and potential disruption of production and supply due to terrorist attacks
or acts of aggression); availability and cost of raw materials, including steel; OEM program delays; demand for and market
acceptance of new and existing products; successful development of new products; reliance on major OEM customers;
labor relations of the company, its suppliers and customers, including potential disruptions in supply of parts to our facilities
or demand for our products due to work stoppages; the financial condition of the company’s suppliers and customers,
including potential bankruptcies; possible adverse effects of any future suspension of normal trade credit terms by our
suppliers; potential difficulties competing with companies that have avoided their existing contracts in bankruptcy and
reorganization proceedings; successful integration of acquired or merged businesses; the ability to achieve the expected
annual savings and synergies from past and future business combinations and the ability to achieve the expected benefits
of restructuring actions; success and timing of potential divestitures; potential impairment of long-lived assets, including
goodwill; competitive product and pricing pressures; the amount of the company’s debt; the ability of the company to
continue to comply with covenants in its financing agreements; the ability of the company to access capital markets; credit
ratings of the company’s debt; the outcome of existing and any future legal proceedings, including any litigation with
respect to environmental or asbestos-related matters; rising costs of pension and other post-retirement benefits and
possible changes in pension and other accounting rules; as well as other risks and uncertainties, including but not limited to
those detailed herein and from time to time in other filings of the company with the SEC. These forward-looking
statements are made only as of the date hereof, and the company undertakes no obligation to update or revise the
forward-looking statements, whether as a result of new information, future events or otherwise, except as oth
erwise required by law.
Agenda
3
8:30
Chip McClure – Overview
8:40
Rakesh Sachdev – The ArvinMeritor Portfolio
8:50
Business Groups
Carsten Reinhardt – Commercial Vehicle Systems
Phil Martens – Light Vehicle Systems
Buddy Wacaser – Emissions Technologies
9:40
Break
10:00
Performance Plus
Jay Craig – Performance Plus
Carsten Reinhardt – Operational Excellence
Phil Martens – Commercial Excellence
10:50
Jim Donlon – Financial Review
11:00
Chip McClure – Closing Remarks
11:10
Question and Answer Session
Commitments Kept
$262 million
Operating income of $250 - $265 million
$284 million
Free cash flow of $100 - $150 million
$501 million
reduction in net debt
Improve balance sheet
Delivery
$1.78
$9.2 billion
EPS of $1.50 - $1.70
Sales of $8.5 - $8.6 billion
Actual Result
Goal
Overview
Goals from 2005 Analyst Day
4
Diverse Customer Base
Commercial Vehicle Customers
Light Vehicle Customers
DaimlerChrysler
10%
General Motors
9%
Volkswagen
10%
Ford 7%
Asia-Based
OEMs 3%
BMW 2%
Fiat 3%
Other LVS
9%
Other CVS
15%
Fiat 2%
Asia-Based
OEMs 3%
Ford 3%
Volkswagen 1%
General Motors 1%
PACCAR 2%
International 3%
Volvo 9%
DaimlerChrysler
8%
47%
Commercial
Vehicles
53%
Light
Vehicles
Overview
5
Consolidated
Revenue
* Includes local operations of companies
headquartered in North America and Europe
+ Non-Consolidated
Joint Ventures
Geographic/Customer Mix
of 2006 Sales
Overview
6
Goals of this program have been achieved
Benefits to date have offset negative effect of raw materials prices,
production volumes and customer pricing
Incremental benefits in 2007 will partially offset stainless steel pricing
$60-65
$50
$50-60
Run-rate annual benefits
$105
$99
$110
Cash Restructuring
$132
$127
$135
Restructuring Costs
Update
Program to
Date
Original
Estimate
($ million)
2005 Restructuring Program Update
Overview
7
Today’s Challenges
North America 2007 Class 8 truck downturn
Light vehicle production cuts in North America
Pricing pressures
Increased material costs
It’s Not Going to Get Any Easier
Overview
8
Today’s Opportunities
Booming growth in Asia
Some competitors weakened
Systems-based solutions
Strong balance sheet and liquidity – a must during these
turbulent times
Overview
The Best Will Rise To the Top
9
Medium-Term Goals
Growth with a Purpose
Overview
1/3 – 1/3 – 1/3 regional business mix
Triple sales in Asia
Triple the size of Aftermarket business
Grow organically where margins are good
Achieve ROIC of 13 – 15 percent
10
Phil Martens,
President, LVS
H. H. “Buddy” Wacaser,
President, ET
Rob Ostrov,
Sr. VP HR
Jay Craig
VP and
Controller
Carsten Reinhardt,
President, CVS
Strong Leaders to Reshape Our Future
New Leadership Team
Overview
11
Performance Plus
Operational Excellence
Make efficient use of assets
High utilization
Optimal footprint
Relentlessly improve costs
Best scale
Best supply base
Best process
No stone left unturned
Commercial Excellence
Pursue opportunities: right products, right technologies, and in the
right global markets
Become a boundary-less organization
Achieve and sustain an industry leading cost and technology position
Overview
12
How is the Program Structured?
J. Craig
P. Martens
P. Martens
J. Craig
C.
Reinhardt
C.
Reinhardt
Aftermarket
Product
Growth
Overhead
Mfg.
ER&D
Materials
Commercial Excellence
Revenue Enhancement
Operational Excellence
Cost Improvements
Steering Committee
J. Craig
J. Donlon
R. Ostrov
C. Reinhardt
P. Martens
Sponsor: R. Ostrov
Talent Excellence
Sponsors: J. Craig and J. Donlon
Program Office
R. Sachdev
Sponsors
Overview
Top Quartile Financial Performance Among Peer Companies
13
The ArvinMeritor Portfolio
Rakesh Sachdev
Senior Vice President,
Strategy and Corporate Development
14
Our Vision for Growth and Profitability
Be a global systems
leader in our target
markets
Build product
technology and develop
capabilities that are
scalable across markets
Profitably commercialize
our solutions to
customers’ growing
needs
Safety
Environment
Mobility
The ArvinMeritor Portfolio
15
Increased
Technology
Decreased
Cost
Functional
Value
Manufacturing
and Packaging
Systems
Modules
INTEGRATED
SYSTEMS
Functional
Mechanical
OEM Trends
Vehicle
Stability
Emissions
Body and
Control
Vehicle
Propulsion
Examples of
evolving system
opportunities
Be a Global Systems Leader in Our
Target Markets
The ArvinMeritor Portfolio
16
Brake
Suspension
Wheels
Steering
Transmission
Driveshafts
Alternative Power
Drive Axle
$2.2
$ Billions
ARM
Current
Addressable
Market
$35
$100
$2.3
$6
$130
$2.6
$14
$14
$1.0
$24
$33
Door Modules
Roof Modules
Latches
Regulators
Vehicle
Stability
Vehicle
Propulsion
Vehicle
Emissions
Vehicle
Apertures
Manifold
Silencing
Emissions
Systems
Components
Illustrative
Build Product Technology and Development
Capabilities that are Scalable Across Market Segments
The ArvinMeritor Portfolio
Total
Addressable
Market
17
Light Vehicles
Commercial Vehicles
Growth from Category Cross-Over
Crossing the Boundary
Leverage technology
Utilize capacity
Innovate for leadership
Future State: Eliminate Boundaries
Steel wheels
Car and light truck axles
and modules
DPFs, converters
Window regulators, door
modules
Medium truck wheels
Drive axles
The ArvinMeritor Portfolio
Commercial diesel emissions
Truck and specialty vehicle
doors
18
Portfolio of Businesses
CV Emissions
LV Emissions
Roofs
Wheels
Doors
Aftermarket
Specialty
Axles
Brakes
Trailers
Low
High
Growth
The ArvinMeritor Portfolio
Emerging
Markets
New
Stars
19
Commercial Vehicle Systems
Carsten Reinhardt
President, Commercial Vehicle Systems
20
Historical Perspective
Commercial Vehicle Systems
Revenues
$ Billions
Operating Margins before special items
Percent
2.9
2000
2.2
‘01
2.3
‘02
2.4
‘03
4.1
2006
-250 bp
+50%
3.2
4.3
‘04
‘05
2000
‘01
‘02
‘03
2006
‘04
‘05
Strong Sales Growth, but Severe Margin Compression
7.6%
2.0%
4.1%
4.8%
5.3%
5.2%
5.2%
21
Observations: Strengths
Commercial Vehicle Systems
Ability to significantly offset North America Class 8
downturn
Solid business portfolio with growth opportunities
CVA
Specialty
Trailers
Diversified customer base
Strong global position
Significant operations in every major market
Leadership positions in North America
Direct investment and JVs in China and India
22
OE/Supplier Forecasts
Calendar Year 2007
Average 211
High Est. 250
Low Est. 181
(Thousands of vehicles)
FY2007 = 235K vehicles
FY2008 = 250K vehicles
Q2 Q3 Q4 Q1
CY2007 = 200K Vehicles
North America Class 8 Volumes
85
55
45
50
50
60
70
70
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
65
35
310
220
FY2009
FY2010
23
Challenges and Opportunities
Commercial Vehicle Systems
30%
30%
15%
200%
Global
Aftermarket
(operating profit)
Specialty
Vehicles
(operating margin)
Trailer Products
(operating profit)
High-Volume
Premiums
(layered-capacity and
premium freight)
North America
Class 8
(unit sales)
Europe
Medium/Heavy
(unit sales)
Asia/Pacific
(ARM sales in
millions)
South America
(ARM sales in
millions)
6%
50%
24
CVS Customer Portfolio
Total Company
CVS=47%
of sales
FY2006
Sales = $4.25B
Commercial Vehicle Systems
25
Top Platforms
Commercial Vehicle Systems
Touareg
VW PL71
Croma
Fiat 194
Golf, Touran, Audi A1, Skoda Octavia
VW PQ34/35
VT, VN, Pinnacle, Vision
Mack/Volvo Class 8
Premium, Magnum
Renault Trucks HD
Coronado, Century S/T, Columbia
Freightliner Class 8
FH, FH16
Volvo Trucks HD
SuperDuty F-Series
Ford P131
4000 Series, CF Series
International MD
Fiesta, European Fusion
Ford B2
E-Class
Mercedes W211
Polo, Ibiza, Audi A2, Skoda Fabia
VW PQ24/25
ProStar, 8000 Series, 9000 Series
International Class 8
Vectra, Zaphira
Opel Epsilon/3000
Silverado, Sierra, Tahoe, Suburban
GMT 800/900
Key Vehicles
Top 15 Platforms
26
Geographic Mix of Sales
Commercial Vehicle Systems
North
America
62%
Europe
25%
Asian OEMs
and ROW
13%
Room to Grow Outside North America
27
CVS Operations in China and India
India:
Technical Center, Bangalore
Engineering, IT and procurement
Automotive Axles Ltd., Mysore
Axles, brakes, housings and components
Meritor HVS India Ltd., Mysore
Product and application engineering, assembly,
marketing and sale of axle and brake products
China:
Pudong
Axle assembly
Shanghai
Corporate office
Wuxi
Trailer axles and suspension systems
ArvinMeritor FAW Sihuan (Changchun) Vehicle
Brake Co. Ltd.
Brakes
Xuzhou Meritor Axle Co. Ltd.
Axles for off-highway vehicles, brakes
Meritor Huayang Braking Co. Ltd. (Shanghai)
Brakes
Commercial Vehicle Systems
28
Observations:
Opportunities to Improve
Focus on manufacturing excellence and execution
Optimize manufacturing footprint to increase capacity
utilization
Build on strong market positions and growing segments
Strengthen product design and development
Aggressively pursue profitable growth opportunities in
emerging markets
Commercial Vehicle Systems
29
Top Priorities
Commercial Vehicle Systems
30
30
Light Vehicle Systems
Phil Martens
President, Light Vehicle Systems
31
Observations: Strengths
Fully capable Tier One global supplier
Improved competitive cost position from rationalization
and refocusing efforts
Leading cost competitive country sourcing and operations
Expanded market bandwidth with
profitable products in profitable regions
Door Systems in China
Medium-duty wheels expansion in Mexico
New technology under development
Conversion from mechanical to electronic
Chassis system products
Light Vehicle Systems
32
Observations: Opportunities
to Improve
Accelerate
establishment of low-
cost, lean operations
Manufacturing
Supply base
Transform business
model with emphasis
on systems integration
Light Vehicle Systems
Building an Entrepreneurial Start-Up Company Mindset
Expedite entry into Asia Pacific
Broaden market with medium- and
heavy-duty wheels
Wheels
Exploit engineering and manufacturing
capabilities
Use new technologies to capture
systems opportunities
Chassis
Systems
Deliver global OEM program
Move capacity to leading cost
competitive regions
Leverage technology expertise from
Audi Q7 large-opening roof module
Roof
Systems
Further expansion into China and
Eastern Europe
Enter Indian market -- underway
Emphasis on electronic system controls
Door
Systems
33
Observations: Opportunities
to Improve
Continue to emphasize organic growth in
Asia Pacific and with Asian OEMs
New business awards have been granted for:
Door modules
Latches/motors
Wheels
Roof modules
Increased capacity being installed to
meet demand
Light Vehicle Systems
Sales with Improved Margins Up 25 Percent in China
34
Top Platforms
Light Vehicle Systems
Top Platforms Demonstrate Global Diversification
Avensis, Corolla
Toyota 296N
Town and Country, Caravan
DCX RS/RT
Santa Fe, Sonata
Hyundai NF/CM
Megane, Scenic
Renault C
Ram
Dodge DR-DE
Focus, C-MAX, Volvo S40/V50
Ford C1
SuperDuty F-Series
Ford P131
Fiesta, European Fusion
Ford B2
E-Class
Mercedes W211
Touareg
VW PL71
Croma
Fiat 194
Polo, Ibiza, Audi A2, Skoda Fabia
VW PQ24/25
Golf, Touran, Audi A1, Skoda Octavia
VW PQ34/35
Vectra, Zaphira
Opel Epsilon/3000
Silverado, Sierra, Tahoe, Suburban
GMT 800/900
Key Vehicles
Top 15 Light Veh. Platforms
#2 LVS
platform
by sales
35
Geographic Mix of Sales
Light Vehicle Systems
North
America
30%
Europe
40%
Asian OEMs
and ROW
30%
Expand Higher Margin Products Into Other Regions
36
Top Priorities
Light Vehicle Systems
37
37
Outlook
2007 will be a difficult year
due to North American market
conditions and continued
pressure from material
economics
Announced LVS restructuring
plans are on track, on time,
on budget
Future restructuring under
evaluation
Asia Pacific continues to be an
area of profitable organic
growth
Light Vehicle Systems
38
38
Emissions Technologies
Buddy Wacaser
President, Emissions Technologies
39
Observations: Strengths
Good products in a growing segment
Sold more than 3 million Diesel Particulate Filters (DPF)
to date, mostly in Europe
Opportunity to grow catalytic converter business in
North America
Commercial Vehicle Emissions in production and
launching more products
Good customer relationships
Good geographic mix
Leadership positions in most segments
Emissions Technologies
40
Observations:
Opportunities to Improve
Inadequate profitability
Improvement areas:
Staff efficiency
Lower-cost footprint
Optimize match between plants and products
Improve and standardize process
Emissions Technologies
41
Top Platforms
Emissions Technologies
Six of Top Seven Platforms are in Europe
Avensis, Corolla
Toyota 296N
Town and Country, Caravan
DCX RS/RT
Santa Fe, Sonata
Hyundai NF/CM
Megane, Scenic
Renault C
Ram
Dodge DR-DE
Focus, C-MAX, Volvo S40/V50
Ford C1
SuperDuty F-Series
Ford P131
Fiesta, European Fusion
Ford B2
E-Class
Mercedes W211
Touareg
VW PL71
Croma
Fiat 194
Polo, Ibiza, Audi A2, Skoda Fabia
VW PQ24/25
Golf, Touran, Audi A1, Skoda Octavia
VW PQ34/35
Vectra, Zaphira
Opel Epsilon/3000
Silverado, Sierra, Tahoe, Suburban
GMT 800/900
Key Vehicles
Top 15 Light Veh. Platforms
42
Geographic Mix of Sales
Emissions Technologies
North
America
41%
Europe
51%
Asian OEMs
and ROW
8%
+ Arvin Sango
and Sejong JVs:
28%
Very Good Global Mix Including Non-Consolidated JVs
43
Challenges and
Market Opportunities
Challenges
Stainless steel prices – new headwind in 2007 compared
to 2006
Production cuts at key customers
Market Opportunities
Commercial Vehicle Emissions
Other regulatory changes
Growth in Asia
Emissions Technologies
44
Top Priority: Restructuring
Took Immediate Action
Eliminated 80 salaried positions
Targeting a total of 110 by March
This action pre-dated the ET restructuring program
Benefits (about $9 million) included in 2007
guidance
Emissions Technologies
45
Details of Restructuring Program
Costs of about $50 million
The cost of this program will be evenly incurred over the
next four years
Expected to affect at least 800 positions
North America plant-product optimization, opening plant in
Mexico in 2007
Transition production from Western to Eastern Europe
Develop model plants for operational excellence
Reorganize tooling/manufacturing engineering
Standardize processes and equipment
Evaluate vertical integration opportunities
Emissions Technologies
46
Break
47
Performance Plus
Jay Craig
Vice President and Controller
48
FY 2007 Outlook
$ 125
$ 75
$ 284
Free Cash Flow
$ 1.25
$ 1.15
$ 1.78
Diluted Earnings Per Share
$ 89
$ 82
$ 125
Income from Continuing
Operations
24.0%
21.0%
20.0%
Tax Rate
(112)
$ (105)
$ (124)
Interest Expense
2.4%
2.2%
2.8%
Operating Margin
$ 8,900
$ 8,700
$ 9,195
Sales
FY 2007
Full Year Outlook (1)
FY 2006
Full Year
Continuing Operations Before Special Items
-
-
-
-
-
-
-
(1) Excluding gains or losses on divestitures, restructuring costs, and other special items
Performance Plus
49
2007 Outlook Compared to 2006
(1) Excluding gains or losses on divestitures, restructuring costs, and other special items
(0.25) - (0.35)
Higher Net Steel Costs
Volume
$(0.45) - $(0.60)
North American Class 8 Downturn
(0.15) - (0.20)
Q1 Big Three Production Cuts
(0.30) - (0.45)
Other Volume/Mix
$1.15 - $1.25
FY 2007 Guidance Range
0.40 - 0.50
All Other Improvements
0.05 - 0.10
Lower Pension and Retiree Medical Expense
0.25 - 0.30
Restructuring Savings
$1.78
FY 2006 Result
Estimated EPS (1)
Performance Plus
50
1.5
Performance Plus is the Answer
Fundamentally transform the company’s earnings power
Includes operational and commercial elements – not just a
cost reduction program
Global scope – the world is our opportunity
Led by team effort of top officers of the company
Have engaged a premier global consulting firm to assist us
Performance Plus
51
Project Approach and Timing
Time
Span
Main
Tasks
Nov. – Dec. 2006
Jan. – Dec. 2007
Jan. 2007 – Dec. 2009
Set overall work
module targets
Plan work modules
in detail
Create baseline and
tracking approach
Generate/identify
improvement
measures
Assign
responsibility and
timeline
Implement quick
wins
Implement initiatives
Track realization of
potential
Institutionalize tools
and methods
Implement
Initiatives
Design
Improvement
Initiatives
Set Targets
Performance Plus
52
Talent Excellence
Pillars of Performance
Performance Plus
53
Baseline EBITDA
$ Millions Before Special Items
Performance Plus
$456
$375-$405
$410-$455
$475-$535
54
Performance Plus
Profit Improvements
REVENUE
Elements
COST
Elements
~$50-$150
~$350-$450
~$400-$600
$ Millions
(Addressable Costs)
Performance Plus
Improvement
(250)
Risk
$150-$350
Net
55
Performance Plus
High-Confidence Improvement
Baseline
High-Confidence
Planning
Assumption
Total
Performance Plus
Before special items
56
2006
2007
2008
2009
EBITDA
$456
$375-$405
$410-$455
$475-$535
EBITDA
$75
$150
EBITDA
$456
$375-$405
$485-$530
$625-$685
What Impact Will it Have in 2007?
Fast-start actions include shared services, axle-yoke
reengineering, rationalizing engineering footprint and
broadening remanufacturing
Benefits in 2007 are expected to pay for initial investment
Expected to include incremental restructuring
Performance Plus
57
Implementing the Initiative
Performance Plus
J. Craig
P. Martens
P. Martens
J. Craig
C.
Reinhardt
C.
Reinhardt
Aftermarket
Product
Growth
Overhead
Mfg.
ER&D
Materials
Commercial Excellence
Revenue Enhancement
Operational Excellence
Cost Improvements
Steering Committee
J. Craig
J. Donlon
R. Ostrov
C. Reinhardt
P. Martens
Sponsor: R. Ostrov
Talent Excellence
Sponsors: J. Craig and J. Donlon
Program Office
R. Sachdev
Sponsors
Top Quartile Financial Performance Among Peer Companies
58
Performance Plus:
Operational Excellence
Carsten Reinhardt
President, Commercial Vehicle Systems
59
Operational Excellence
Overhead
Manufacturing
Material
Optimization
60
Operational Excellence
Consolidate purchasing
activities to increase scale
Renegotiate rigorously for
cost reductions
Fully utilize value analysis/
value engineering tools
Identify, qualify and source
leading cost competitive
suppliers
Concentrate business with
key supplier partners
Material
Optimization
61
Axle Yoke Optimization
Margins pressured by rising costs
Redesigned part for equivalent
performance, reduced weight,
reduced machine time and lower
cost
Continue to manage/optimize and
leverage for new business
Target
05-06
Achieved
Identified
$2,915,666
Old forging
23.4 lb.
New forging
13 lb.
62
Operational Excellence
Optimize footprint
Improve equipment utilization
Fully institutionalize Six Sigma
and lean principles
Leverage new technologies for
world-class efficiency
Improve supply logistics and
flow
Manufacturing
63
Manufacturing Network
Optimization
Drive pinion manufacturing in Morristown, TN
Technology improvement: near net forging tooth
Material, freight and labor savings $1.5M
Downstream plant cycle-time savings of $0.6M
Total manufacturing optimization savings: $2.1M
Transfer Manning, SC driveline manufacturing to
Laurinburg, NC
Annual savings of $1.4M
Future projects to benefit from “boundary-less”
optimization
64
Operational Excellence
Shared Services
Integration of staffs and
consolidation of
corresponding facilities
Purchased services
Utilities
Legal services
Consulting, auditing and
transaction fees
Waste disposal
Overhead
65
Shared Services
Shared services approach used on a limited basis,
primarily in the U.S., for several years
Accounts Payable
Benefit administration
Other administrative functions
Increase number of centralized functions
Consolidation
Standardization
Systemization
Boundary-less organization
Overhead
66
Shared Services
Launched Shared Services pilot program in partnership
with HCL
Twenty Accounts Payable positions moved to Chennai,
India
Achieved two-thirds cost and productivity improvement
Based on success of pilot, looking to ramp up additional
activities throughout 2007
Accounts Receivable, Payroll, Benefits
Overhead
67
Performance Plus:
Commercial Excellence
Phil Martens
President, Light Vehicle Systems
68
Commercial Excellence
Aftermarket
Product
Growth
Engineering
Research and
Development
69
North
America
Western
Europe
South
America
Source: CSM Worldwide light vehicle production by region (2006 – 2012)
Central
Europe
Middle East
& Africa
+1.0%
Changing Landscape
Asia
Pacific
Product Growth
+6.4%
+1.3%
+5.4%
+9%
+3.7%
Global Light Vehicle Production Outlook
70
North America
Western
Europe
South America
Eastern
Europe
1
5
8
0
Leverage Global Expertise
Engineers:
-15%
Engineers:
-10%
Engineers:
+50%
Engineers:
+100%
Asia
Pacific
2
Engineers:
0%
Product Growth
Realigning Resources to Exploit Global
Market Opportunities
Engineering/Technical Centers
71
Commercial Excellence
Grow profitability by
increasing revenues and
margins
Right products
Right technologies
Right global markets
Grow systems capabilities
globally
Product
Growth
72
Example: Passenger car suspension modules to vehicle stability systems
Electronic Control Unit
Modulator devices
Electronic components
Algorithm/Software
Modular assemblies
Shocks
Stabilizer bars
Springs
Mechanical integration
Functional integration
$28 B
$39 B
$15 B
Suspension
Adjacent
Components
Control System
Components
Module market
ARM current
$82 B
Integrated
Stability System
Suspension
Steering
Braking
Controls
Evolving from Products to Systems Will Increase
Our Value Add and Ability to Differentiate
Product Growth
73
Transforming ArvinMeritor
Establish one regional office for Asia Pacific with technical
centers in India and China
Aggressively pursue/manage
growth with focus on higher
margin product lines
Execute strategy with one voice
Announce regional leader
(at later date)
Product Growth
Asia Pacific Regional Focus
74
Commercial Excellence
Achieve and sustain a
competitive cost and
technology position
Deliver five “gotta have”
products from product
development pipeline
Consolidate and leverage
corporate technical
capabilities to increase speed
to market
Engineering
Research and
Development
75
Transforming ArvinMeritor
Establish one ArvinMeritor product development system
with global reach
Combine CVS and LVS advanced engineering
activities under one management leadership
team to accelerate:
Corporate technical capabilities
Speed to market
Systems engineering focus
ArvinMeritor product development
organization announced January 2007
Engineering Research and Development
76
Replace Current High Volume Mechanical Products
With Electronic Margin Products
All major OEM footprints
addressed with 3 designs
Step-change in cost and
functionality
Unprecedented customer
interest
Latch evolution
continues…
Extremely low release
efforts (5%) compared
to current technology
Low noise
Engineered handle feel
Provides automatic
failsafe manual release
Non-Contact switches
Reduced size and
improved water
resistance
Low-Energy Release Latch
Engineering Research and Development
Central lock
Superlock
Passive lock/unlock
Electric child safety
and power release
25 million latches
produced annually
Production
Mechanical
Patented Electro-
Mechanical
Competitive
Advantage
Opportunity
77
Active Suspension Control
Roll Control Systems
(Adaptive or Active)
Modular
Adaptive Damping
Active Air Suspension
Less Complicated Chassis Systems
Delivering Better Performance
Engineering Research and Development
78
Alternative Powered Vehicles
Unicell commercial pick-up and
delivery program
Zero emissions and fossil fuel
consumption
10% increase in driver productivity
from vehicle enhancements
Certification testing and
commercialization continue
Growing driveline and electric axle
products through system integration
of motors, gears and controls
Engineering Research and Development
Advance Efforts to Participate in Rapidly-Emerging
Commercial Alternative Powertrain Vehicle Segment
79
Conventional Drivetrains
Engineering Research and Development
80
Hybrid Electric Vehicle
Engineering Research and Development
81
Commercial Excellence
ArvinMeritor has strong
position in North America
commercial vehicle
aftermarket and
remanufacturing segment
High margin products that
we can expand rapidly
Rest of world promises
significant growth
opportunities
Aftermarket
82
North American Remanufacturing
Current Situation
Existing business primarily in production-
based ArvinMeritor products
One dedicated remanufacturing facility
Plainfield, Indiana
Multiple product capability
Brake shoes
Heavy-duty differential carriers
Transmissions
Hydraulic brake cylinders
ISO Certified (per Aftermarket Remanufacturing Standard)
Aftermarket
83
Aftermarket Remanufacturing
Strategy
Existing
Products
New
Products
Existing
Customers
New
Customers
Future Opportunities for Increasing Addressable Market
Untapped
Customer
Segments
- Transit
- Government
Gain New
Contract
Business
Global
Expansion
Expand NA
Product Offering
Aftermarket
84
Total Market
ArvinMeritor
Aftermarket Addressable Market
Aftermarket
$ 1.2B Market
$ 2.5B Market
$ 5.9B Market
$ 4.5B Market
85
AVENUES FOR EXPANSION
PREREQUISITE FOR SUCCESS
Aftermarket Represents Significant Growth Opportunity
Profitably Expand Aftermarket Service
and Support Business
Aftermarket
86
1.
Expand product catalog
Tier 1 alliances
2.
Develop profitable services
Bolt-on operations (e.g.,
Remanufacturing)
3.
Grow regionally
Follow emerging market
penetration
Alliances with local
aftermarket
providers
Financial Review
Jim Donlon
Senior Vice President and Chief Financial Officer
87
Q1 Earnings Historically Lower Than
Subsequent Quarters
Financial Review
European Axle Launch
Costs
Stronger Productivity
Improvements
Stronger Productivity
Improvements
Moderate Productivity
Improvements
Additional Aftermarket &
Asian Growth
Contribution
Additional Aftermarket &
Asian Growth
Contribution
Additional Aftermarket &
Asian Growth
Contribution
Increased Restructuring
Savings
Increased Restructuring
Savings
Increased Restructuring
Savings
Higher Steel Costs
Higher Steel Costs
Higher Steel Costs
N.A. Heavy Truck Market
Down Significantly
N.A. Heavy Truck Market
Down Significantly
N.A. Heavy Truck Market
Down Slightly
Slightly Higher N.A. Heavy
Truck Market
Reduced Big Three
Production
Reduced Big Three
Production
Reduced Big Three
Production
Significantly Reduced Big
Three Production
Q4 2007
Q3 2007
Q2 2007
Q1 2007
RED = Decreases
GREEN = Increases
$0.40
Q4 2006
$1.78
$0.76
$0.45
$0.17
FY 2006
Q3 2006
Q2 2006
Q1 2006
EPS – Before Special Items
88
Pension Update
Financial Review
Long-term return assumption currently at 8.5%
U.S.
Asset Returns
Discount rate assumption currently at 6.6%
U.S.
Discount Rate
$101
$102
$114
$134
$58
Contributions
$69
$72
$68
$76
$95
Expense
$122
$182
$243
$316
$409
Unfunded Status
FY 2010
FY 2009
FY 2008
FY 2007
FY 2006
89
Retiree Healthcare Update
Financial Review
Discount rate assumption currently at 6.4%
Discount Rate
$51
$52
$53
$54
$56
Contributions
$55
$55
$55
$57
$47
Expense
$560
$569
$578
$587
$600
Retiree Medical
Liability
FY 2010
FY 2009
FY 2008
FY 2007
FY 2006
90
Forward-Looking Tax Rates
Before Special Items
Financial Review
$62 million
Primarily:
FY00-03 Tax
Settlements
American Jobs
Creation Act
Tax Favorability
23%-27%
21%-24%
20%
Normal Tax Rate
FY 2008
FY 2007
FY 2006
91
Closing Remarks
Chip McClure
Chairman, CEO and President
92
Summary
Strong portfolio of businesses
Process to generate more high growth products
Strong and unified leadership team
Performance Plus will transform the company
93
Q & A
94
Appendix
95
Use of Non-GAAP Financial Information
In addition to the results reported in accordance with accounting principles generally accepted in the United States (“GAAP”)
included throughout this presentation, the company has
provided information regarding income from continuing operations,
diluted earnings per share and operating income and margins before special items, which are non-GAAP financial measures.
These non-GAAP measures are defined as reported income
or loss from continuing operations, reported diluted earnings or
loss per share from continuing operations and operating income or loss plus or minus special items. Other non-GAAP
financial measures include “EBITDA before special items”
and “free cash flow”. EBITDA is defined as earnings before interest,
income taxes, depreciation and amortization plus or minus special items. Free cash flow represents net cash provided by
operating activities less capital expenditures.
Management believes that the non-GAAP financial measures used in this presentation are useful to both management and
investors in their analysis of the Company’s financial position and
results of operations. In particular, management believes
EBITDA is a meaningful measure of performance as it is commonly utilized by management and investors to analyze operating
performance and entity valuation. Management, the investment community
and the banking institutions routinely use EBITDA,
together with other measures, to measure operating performance in our industry. Management believes that free cash flow is
useful in analyzing the Company’s ability to service and repay its debt. Further,
management uses these non-GAAP measures
for planning and forecasting in future periods.
These non-GAAP measures should not be considered a substitute for the reported results prepared in accordance with GAAP.
EBITDA should not be considered as an alternative to net income as
an indicator of our operating performance or to cash
flows as a measure of liquidity. Free cash flow should not be considered a substitute for cash provided by operating activities
or other cash flow statement data prepared in accordance with GAAP or
as a measure of liquidity. In addition, the calculation
of free cash flow does not reflect cash used to service debt and thus, does not reflect funds available for investment or other
discretionary uses. These non-GAAP financial
measures, as determined and presented by the company, may not be
comparable to related or similarly titled measures reported by other companies.
Set forth on the following slides are reconciliations of these non-GAAP financial measures, if applicable, to the most directly
comparable financial measures calculated and presented in accordance
with GAAP.
96
Non-GAAP Financial Information –
Full Year FY 2006 Results Before Special Items
97
Non-GAAP Financial Information –
FY 2006 Quarterly Results Before Special Items
98
Non-GAAP Financial Information –
Free Cash Flow
99
Non-GAAP Financial Information –
EBITDA – before special items
100